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Steve Case explains why innovation can happen anywhere

Innovation occurs outside the Bay Area, New York, Boston, and Austin. So why is it so hard for a startup to get attention and acquire venture capital?

Conventional wisdom suggests that success in technology can be found only in tech clusters like Silicon Valley and Boston's Route 128 corridor. Never rely on conventional wisdom if you're an innovator. Money follows real innovation.

Today we associate the tech industry primarily with Silicon Valley, particularly when it comes to investment in startups. As Steve Case, founder of AOL and author of The Third Wave, points out in a recent Recode interview78 percent of U.S. venture capital last year went to just three states: California, New York, and Massachusetts. 

But Case sees entrepreneurship and innovation opportunities across the United States. The first wave of the Internet saw AOL and other companies lay a foundation for consumers to connect. "The second wave saw companies like Google and Facebook build on top of the Internet to create search and social networking capabilities, while apps like Snapchat and Instagram leverage the smartphone revolution." Only in its second wave did investors look primarily for innovation in Silicon Valley, New York, and Boston, says Case, who is now chairman of Revolution Growth, a VC firm that focuses on startups based outside major tech centers. 

Now, Case argues, we're entering the third wave: "a period in which entrepreneurs will vastly transform major 'real world' sectors like health, education, transportation, energy, and food—and in the process change the way we live our daily lives."

Case points out that the United States was a startup not that long ago. The idea that innovation can come from anywhere is coded in our national DNA. But even though innovators can be found everywhere, startup success is far less evenly distributed. 

Revolution Growth CEO and Chairman Steve Case says the U.S. is a leading force in innovation.

Revolution is committed to invest 90 percent of its capital in companies located outside of Silicon Valley. Case is doing road trips to "shine a spotlight on the great entrepreneurs and ideas that live outside of Silicon Valley—and also outside of tech," he explained to the Consumer Technology Association in 2015. The VC firm is providing both early and later stage venture capital, with investments in companies located in off-the-beaten-path parts of the country—at least by tech industry standards. Such companies include Sweetgreen in Washington, D.C.; Framebridge, also in Washington, D.C., and OrderUp in Baltimore. "These companies are taking on big issues like health, learning, energy, and food. We cannot put all our eggs in one basket if the U.S. is going to continue to be a leader in the global economy. It's important to recognize that some of today's startups will become tomorrow's Fortune 500 companies, so we need to continue to support their growth and success, all across the country," Case says.

Revolution LLC CEO and Chairman Steve Case talks about finding innovation everywhere.

But you don't need to wait for Steve Case to come to your town on his next road trip. Innovators outside the major centers can get the attention and funding they need, in part because VCs know they need new deal flow. Investors are aware, for example, that startups outside traditional tech clusters can hire great talent for less money. 

Want your startup outside Silicon Valley and New York to be a success? You can do it. Here are highlights of the work underway in Phoenix.

Bring your community together

Perhaps you think you can go it alone in your garage, but it's important for entrepreneurs in a locale to connect with one another. Make some noise. Connection breeds an ecosystem in which companies feed off the successes of one another.

Local entrepreneurs turned out en masse for Case's Rise of the Rest Tour stop in Phoenix last year. The event was on a Friday afternoon in hard-to-navigate downtown Phoenix. More than a thousand people turned out to meet Case. His fund later invested in Neolight, a Phoenix biotech startup whose technology treats jaundice in newborns.

Only in the past three years has the Phoenix community come together to work collaboratively and show strength for both internal and external purposes. The tipping point for the Greater Phoenix collaborative movement was something called #yesphx—a hashtag and a happy hour. The #yesphx Happy Hours grew to over 500 attendees some months and led to the first Startup Week Phoenix, another outstanding event.

Startup Week spread itself to five different venues throughout our 9,200-square-mile county. It demonstrated that what we long suspected was actually true: Entrepreneurship is alive and well in central Arizona. It only needed some events to bring folks together and a boost from national brand sponsors such as Chase Business and Startups.co.

Encourage co-working and networking events. Co-working spaces bring entrepreneurs together into an ecosystem where they can buy from one another and support one another. Not every company in the ecosystem needs to be a tech company; a mattress company can work near a food startup or a company that runs after-school programs.

All businesses have some common problems outside their domain expertise, such as hiring, finance, legal structures, and marketing. Working together means shared insights and solutions.

Stop thinking about venture capital and start thinking about solving a problem for a customer. Once you see a real problem that needs a solution, you will be paid to solve it. WebPT, a Phoenix-based workflow solution for physical therapists, started with a married couple and their own talents and needs. She was a physical therapist, and he a software developer. He developed a site for her practice, and other therapists asked to use it. By the time the company got funding, it had enough customers to support the growth of the business.

Same with Infusionsoft, a large CRM solution for small businesses. Infusionsoft was founded by two brothers and a third relative, and converted its first customers into a referral base and an affiliate network. Eventually, Infusionsoft attracted the attention of Goldman Sachs, but by then it had tens of millions in self-funded revenue.

Think in terms of team building. As an innovator, you need a team. The team needs to consist of people who learn to bet on the outcome, which may mean working for equity at the beginning. People come to a startup on faith, which is why not just anyone is right for a startup team. You also need seed funding, which can come from a public-private partnership, an individual, family, or credit cards. Seed funding never comes from venture capital, so even if there isn't any in your city, you can get ready for it anywhere.

Use mentors. People who have had success often don't mind giving advice. Be a listener first, and sort through the advice later, since not all advice is useful. And don't rule out being mentored by phone or Skype. If you want someone to mentor you, get in touch with them and ask. The worst they can do is refuse.

In short, quit complaining and make yourself innovative. Investment is highly overrated, since it can take your company in strange directions that could even cost you your job. Building a company with customers is much less dangerous.

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This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.